Bad hangover expected for property market in 2016

The Australian housing market is on track for a bad hangover in 2016. After a year of partying at double-digit price growth, particularly for Sydney and Melbourne, the two main markets are set to cool, experts say.

Even the markets that were doing it tough in 2015 – Perth, Darwin and Canberra – will not be getting a reprieve. The threat of an economic downturn is not out of the question, which could further dent softening markets.

But it is not all bad, particularly for Sydney and Melbourne buyers, who will relish a “welcome cooling off period”, Aussie Home Loans chairman John Symond says.

Housing is on track to cool in 2016, especially in Sydney and perhaps Melbourne. Photo: Rob Homer

“Next year should provide buyers with a bit more breathing space to relax and take their time choosing the best house or apartment for their needs and aspirations,” he says.

Sydney and Melbourne closed the year with growth of 12.8 per cent and 11.8 per cent respectively, according to Corelogic RP Data. Those numbers will be replaced by three per cent and one per cent in 2016, head of research Tim Lawless says.

“Over the past three months we saw five of the eight capital cities record a decline in dwelling values, with Sydney down one per cent and Melbourne, 0.5 per cent,” he says.

“We may see further declines during 2016; however, considering the high rate of population growth and stronger economic conditions in these cities, I’d be surprised if the fall was more than five per cent before conditions start to level.”

Melbourne and Brisbane will overtake Sydney in the growth stakes, many experts conclude.

“I’m not sure where the notion of a significant slowdown in the Melbourne housing market is coming from, but the data to date is completely contrary to this notion,” SQM Research managing director Louis Christopher says.

Victorian Planning Minister Richard Wynne just approved one of the largest single development proposals for Melbourne – Malaysian developer PJ Development’s $1.5 billion six-tower project at Southbank.

BRISBANE, SOUTH-EAST QUEENSLAND

But Brisbane and south-east Queensland could still outperform Melbourne. Newly listed public company McGrath Ltd’s John McGrath swears by the region, as does Brisbane luxury agent Johnston Dixon’s John Johnston.

“Putting all of the psychological and economic factors at play, south-east Queensland is probably either already at or near the bottom of the current downturn; when you’re at the bottom, the only way is up,” Mr Johnston says.

“Yields in Brisbane are much higher compared with Sydney and Melbourne … and affordability is far superior to the two larger cities,” Mr Lawless adds.

Hobart is another one to watch. The highest rental yields can now be found in Hobart and Darwin, both averaging 5.4 per cent, according to Corelogic RP Data.

However while Hobart yields are rising, the same cannot be said for Darwin, where rents are falling. Mr Christopher says it is fast becoming Australia’s most undervalued city.

Perth and Darwin will not recover well – there are no signs of bottoming for Perth’s falling housing prices.

Canberra’s oversupplied housing market will stall, as will Adelaide’s.

“Adelaide is not in any type of dire shape like Perth and Darwin, but nothing to write home about either,” Mr Christopher says.

Laing+Simmons managing director Leanne Pilkington warns that property agents will be tested, but first-home buyers will see opportunities.

“If the door is closing somewhat to investors, another may open for first-home buyers; supply is up and the price heat has subsided,” she says.

But the key tests in 2016 will be the national and global economies, and policy changes. Mr Symond says 2016 will feature global uncertainty and slow economic growth.

In the longer term, the Turnbull government’s tax reform may change negative gearing, concessional capital gains tax, superannuation, stamp duty and land tax. Each one moves a real estate lever.